Maximizing Referrals

Success in homebuilding tends to vary by market area in today’s industry. In weak markets, success may be the ability to reposition for market uncertainty. In areas of mediocre market activity, builders that are maintaining or gaining market share may be the models of success. In robust markets, success may mean keeping pace without suffering customer experience chaos. Regardless of market conditions, all homebuilders can accelerate success by focusing on highly qualified prospects.

The No-Cost Conversion Increase
Advertising and marketing are crucial for attracting new customers, however, there is a way to significantly increase the conversion rate of prospects into actual homebuyers and it doesn’t involve a single advertising dollar. The secret is “maximizing referrals” and as obvious as that sounds, it requires innovative systems and processes.

Many homebuilders have sales teams trained to ask prospects how they heard about the builder. Typically, this information is used to determine the effectiveness of various marketing channels, such as social media, print media and other advertising. When prospects mention that they were referred by a friend or family member, that fact may be noted but it often dies there. However, this information is some of the most valuable information for a sales team to leverage.

Profitable Prospects
The reality is that not every prospect has the same likelihood of buying. A marketed prospect who has done minimal research before visiting a sales center is at the earliest point in the buying cycle. Comparatively, a prospect who has researched a builder’s marketing, website, online reviews and more, is likely to be further along in the buying cycle. But the prospects who are most likely to buy are those who have been referred by family or friends. Referrals are “third party endorsements” that create the most cost-efficient, profitable and loyal sources of new business. Referral business delivers the highest return on investment by reducing sales expenses and shortening sales cycles. Based on research conducted by Avid Ratings, referral prospects are twice as likely to make a purchase within six months versus marketed prospects. One particular builder even found the conversion rate of referred prospects to be three times higher than marketed prospects.

The closing ratio for non-qualified leads is 10 percent, versus 60 percent with referred leads, according to sales trainer and author Tom Hopkins. This reinforces the argument that investing resources into identifying and servicing referred prospects will provide big returns. Top-performing builders in customer satisfaction are best positioned to focus on referred prospects and reap the higher conversions that result and this comes down to three simple steps.

Step One – Identification
The first step is to utilize a detailed tracking system for referrals. Not only tracking which prospects were referred but also who referred them, when the referral took place and other key details. The power of today’s CRM software products make this task rudimentary, yet it is surprising how many builders fail to collect, compile and leverage this critical information.

Step Two – Sales Strategy
Even the most thorough information still needs to be acted on and timeliness is critical. Hundreds of thousands of dollars may be sitting unrealized in CRM data unless a sales team is acting quickly and executing a sound strategy. It takes a specific plan to deal with high-priority referred prospects. This plan is different than one used for other prospects because referred prospects typically have heightened knowledge and trust. Referred prospects come in the door because someone close sent them. Personalizing communications can occur more quickly and mentioning the “referrer” in conversations will help to strengthen the relationship. Not all referred prospects will generate immediate business but they all have higher potential.

Step Three – Increasing Referral Traffic
After ensuring that a sound system and strategy is in place for referred prospects, the goal is to increase the amount of referrals coming in the door. Having tools that can identify which past customers are “promoter” customers is indispensable. From there, specific strategies can be developed such as incentive programs to referrers or those referred. There may also be opportunities to create “events” that provide venues for happy homeowners to connect with prospects. Many homeowners want to recommend their builder and creating opportunities for that to occur pays big dividends. 

Be Referable
Referred prospects are a significant source of business for leading builders and “being referable” is vital. That means building quality homes, providing exceptional customer service and creating outstanding homeownership experiences long after the possession date. With those building blocks in place, maximizing referrals becomes the game-changer in any market conditions.

Tim Bailey is Division President of Avid Ratings Canada, a leading provider of customer loyalty research and consulting to the homebuilding industry. Through the Avid system, industry-leading clients improve referrals, reduce warranty costs, and strengthen their brand. He can be reached at tim.bailey@avidratings.ca.

 

Crossing Home Plate

by: Tim Bailey, Division President of Avid Ratings Canada

Building homes means managing hundreds of processes, while assembling thousands of components made from a combination of natural, manufactured, pre-fabricated and human-assembled materials. The construction process spans several months, in conditions that may include scorching heat, drenching rain, gusting winds, frigid snow or anything in-between. It is not surprising that Dr. Jack B. ReVelle, Six Sigma expert and quality guru, has noted that “the average home has more than 60,000 points of failure during the building process.” Building homes is not an easy sport.

Stopping at Third Base
In light of the complexities of home building, it seems reasonable to think that making it to closing with only a handful of incomplete or deficient items should be considered a victory. Unfortunately, homebuyers rarely look at what has been accomplished, but rather, what remains incomplete when they receive keys for their new home. A builder with a short list of deficiencies at occupancy may view that as a “win,” but most homebuyers score that less generously in customer satisfaction. “Stopping at third adds no more to the score than striking out. It doesn’t matter how well you start if you fail to finish,” according to legendary major league baseball player Billy Sunday.

On the scoreboard of customer satisfaction, two key elements are in play when buyers take possession of their new homes: The first is the “number” of deficiencies and the second is how homebuyers “perceive” that number. Even the best builders “leave runners on third” at times, but customer satisfaction leaders score higher by managing customer expectations while turning over homes with few, if any, shortcomings.

Number of Incomplete Items
Survey data from Avid Ratings’ “All-Canada” database indicates 22.2 percent of homebuyers reported having “three or fewer” deficiencies at the time of their pre-delivery walk-through, with 2.6 percent of those buyers reporting zero deficiencies. Hopefully the goal for all home builders is to have zero deficiencies by closing ─ or preferably by the pre-delivery walk-through ─ however, this data suggests that 97.4 percent of homebuyers report some deficient items at their walk-through.

In comparison, data from an industry-leading builder in customer satisfaction shows that 55.3 percent of their homebuyers reported having “three or fewer” deficiencies at their walk-through ─ 33.1 percent better than the “All-Canada” data above ─ with 6.4 percent of their buyers reporting zero deficiencies. A good batting average in baseball is typically above .300 and similarly, while leading builders are not perfect, they are batting at higher averages in the delivery of deficiency-free homes.

Perception is Reality
Setting expectations for homebuyers is a key factor in customer satisfaction, as customer perceptions become reality. Homebuyer perception regarding deficiencies at the walk-through is crucial to monitor and understand. Survey data from Avid Ratings’ “All-Canada” database indicates 71.8 percent of homebuyers believe the number of deficiencies at their walk-through was either “about as expected” or “less than expected/no items.” This leaves 28.2 percent of homebuyers feeling that the number of deficiencies at their walk-through was “more than expected” or “much more than expected.”

Again in comparison, data from an industry-leading builder in customer satisfaction shows that 85.4 percent of their homebuyers believe the number of deficiencies at their walk-through was either “about as expected” or “less than expected/no items” ─ 13.6 percent better than the “All-Canada” data above. This leaves 14.6 percent of their homebuyers feeling that the number of deficiencies at the walk-through was “more than expected” ─ no homebuyers reported “much more than expected.” Even the best builders are not hitting home runs every time they are setting customer expectations, but they are generally leading the league in this area.

Finishing Strong
Managing the complexities of homebuilding should bring the reward of homeowners that are passionate fans, but this is only possible if customers receive complete and ready homes that align with their expectations. Turning over homes with few, if any, deficiencies shows up on the scoreboard through referrals and positive reviews. Finishing is always the most important part of the race.

Optimize 3Ps to Create Outstanding CX

By: Tim Bailey – Division President of Avid Ratings Canada and Paul Cardis – CEO and Founder of Avid Ratings

There are proven business initiatives that generate profound results and home builders may employ one or more of these initiatives, such as Lean, Six Sigma, or Kaizen, to stay the course towards sustained excellence. Lean initiatives help reduce waste and inefficiencies. Six Sigma practices reduce defects and deficiencies. Kaizen maintains a focus on continual improvement. The core building blocks of all business improvement initiatives are People, Product, and Process. Understanding the interactions of these 3Ps is essential to CX — the customer experience.

People
A key ingredient in a successful organization is the people. The collective knowledge, attitude, aptitude, and level of genuine caring has a tremendous impact on the success of the organization. Having the right people only solves part of the equation, as they must also be aligned to the right roles. A highly skilled construction manager who consistently exceeds time, quality, and budget objectives, but falls short with customer-facing interactions, should either be provided with thorough training to help excel at customer interactions or be buffered from those situations in order to leverage what he or she does best for the company. Hammering a square peg into a round hole does not create solutions, only friction. Recognizing key strengths of individuals and aligning these strengths with respective roles and responsibilities will maximize success.

Comprehensive and ongoing training will always generate a significant return on investment. Acquired skills and knowledge better equip team members to be trusted and empowered. An organization is only able to scale successfully if people are afforded the trust and authority to make decisions within their area of responsibility. It is important to remember that trades and suppliers form a substantial percentage and integral part of the “people” for a home builder, and must therefore be considered part of that detail in the 3Ps blueprint.

Product
The best people and processes cannot be successful if the product misses the mark. In home building, “product” includes factors such as design, specifications, location, and price. Achieving a successful “product-market fit” is the goal, and fortunately there is a vast amount of data that can be leveraged to ensure product-market fit is not left to chance. Home builders are not building structures, but providing “solutions”. Intimately understanding the needs of home buyers in a target market allows product to be brought to market that meets those needs and provides those solutions.

Product design must consider demographic, ethnographic, psychographic, and economic information for a target market. Home building is a high-stakes industry and including features or specifications that are not valued by a target market adds unnecessary costs. Designing a product that “checks all the boxes” for the target market will maximize value for customers, increase sales velocity, and improve margins.

Process
A well-intentioned team and market-matched product will not be able to succeed without a sound process. “A bad system will beat a good person every time,” according to quality expert W. Edwards Deming. A good process is repeatable, scalable, efficient, and constantly improving. Auditing the current process in home building means digging deep into every area of the company. It is a significant undertaking but reaps great rewards. Process analysis unearths existing bottlenecks, non-value-added stages, inefficiencies, and waste. Layering the customer journey over that process exposes potential “friction points” and allows the process to be engineered to enhance the customer experience.

The effects of process deficiencies are often easy to spot, but identifying root causes is what facilitates improvement. A root cause exercise of “5 Whys” is a common practice in Lean, Six Sigma, and Kaizen methodologies. It involves digging deep into a negative effect by asking a series of “why” questions five times. The answer from each “why” forms the next question and the fifth “why” generally exposes a root cause.

Using 3Ps for CX
The customer experience is at the core between the interactions of people, product, and process. To “manage with metrics” to optimize the 3Ps, leading companies rely on:

  • Employee feedback
  • Trade feedback
  • Customer feedback
  • Production statistics
  • Deficiency/warranty data
  • Market research
  • Financial results

Business excellence designed around the 3Ps will result in teams that are engaged, organized, and advantaged, and a customer experience that creates loyal promoters.